NEWHORIZON
NEWHORIZON - Institute of Islamic Banking and Insurance
NEWHORIZON - Institute of Islamic Banking and Insurance
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<strong>NEWHORIZON</strong> Shawwal-dhu al Hijjah 1431<br />
POINT OF VIEW<br />
finance as Shari’ah arbitrage, where, in the<br />
name of religion, Muslims are asked to pay<br />
more to for-profit companies for what is<br />
otherwise available for less.<br />
Professor Mahmoud El Gamal, known for<br />
his criticism of the modern Islamic finance<br />
industry for putting religious form over<br />
substance has also advocated mutuality on<br />
religious, economic, and regulatory<br />
grounds. This is not to say that mutuality by<br />
itself can overcome all challenges. For<br />
instance, mutual or not, the organisation<br />
would need to offer service standards that<br />
would meet the expectations of its<br />
customers and shape its governance to deal<br />
with ethical demands in both an Islamic and<br />
secular context.<br />
Mutuality may also bring challenges of its<br />
own in terms of accessing capital,<br />
particularly in the initial years. Mutuals<br />
have dwindled in numbers after a wave of<br />
demutualisation, though some in the ethical<br />
finance sector are expecting the wind to<br />
start blowing in favour of mutuals in the<br />
aftermath of the financial crisis.<br />
in the UK was worth £14.35 billion in 2008<br />
compared to £5.17 billion in 1999. The<br />
group also reported that despite the<br />
financial crisis, 2009 was the ‘third<br />
successive year of double digit growth in<br />
group sales and profit’ and ‘switching of<br />
customer accounts from the so-called ‘big<br />
five’ banks to the Co-operative Bank<br />
increased significantly.’<br />
Islamic Finance in European Retail Markets<br />
Like the UK, other European countries<br />
interested in Islamic finance will set<br />
objectives tailored to their own particular<br />
circumstances but they are likely to look<br />
closely at the UK experience, which suggests<br />
that in the retail market focusing only on<br />
Muslims with a mainly religious proposition<br />
is unlikely to be the best approach.<br />
There is much in common between ethical<br />
and Islamic finance and this could be used<br />
to create an alternative approach. One<br />
possible alternative is a mutual structure<br />
with an ethical proposition for the broader<br />
ethical market, but one which also takes<br />
into account the unique requirements of<br />
Islamic finance.<br />
It would be interesting to observe what<br />
conclusion other European countries draw<br />
from the UK experience and if and how they<br />
facilitate development of Islamic finance in<br />
their retail markets on an ethical<br />
foundation.<br />
Ethical Finance in the UK<br />
Ethical finance is marketed differently from<br />
Islamic finance. For instance, it targets a<br />
larger section of the population emphasising<br />
competitive services, a strong environmental<br />
appeal, a focus on the common man and no<br />
religious symbolism. This is also why the<br />
two are probably seen as different.<br />
Where prospects of Islamic finance in the<br />
UK’s retail market are being questioned,<br />
reports are somewhat more bullish on the<br />
prospects for ethical finance. According to<br />
Ethical Investment Research Services<br />
(EIRIS), a subsidiary of EIRIS Foundation,<br />
the money invested in Britain’s green and<br />
ethical retail funds was £9.5 billion at the<br />
end of 2009 representing approximately<br />
750,000 investors, up from around<br />
£2.4 billion and 200,000 investors in<br />
1999.<br />
The Ethical Consumerism Report 2009 by<br />
the Cooperative Financial Services group,<br />
which includes the Co-operative Bank,<br />
states that overall the ethical finance market<br />
Disclaimer: The views expressed here are solely those of the writer and not of his employer.<br />
www.newhorizon-islamicbanking.com IIBI 29